Smart cities harness technology to improve their urban efficiency. Compared to a traditional city, they are better prepared for sudden and rapid urbanization, power shortages, congestion and pollution. Ultimately, the intentional and creatively designed public resources improve the quality of services delivered to their citizens while reducing operational headaches — and therefore costs — for public administration.
More often than not, new smart cities are built on a master plan. With 2.5 billion people expected to be living in cities by 2050, particularly in the Global South, smart cities could be instrumental in accommodating them effectively.
A corporate location decision-maker is tasked with evaluating and deciding on cities or regions to establish headquarters or facility investment. There are numerous considerations that come into effect here but the most important is that the city fits the company’s specific business needs. There are common factors that are inevitably considered in the decision-making process:
- Features (city size, industrialization level, geographic position, proximity to capital and current headquarters)
- Infrastructure and business climate (time to operational activity, access, services)
- Labor force (educated population, university presence, quality of life for talent attraction and retention)
- Financial returns (upfront cost hurdles, investment return)
- Regulatory incentives (taxes, duties, one-stop shops, special economic zones)
- Logistics (public transport, commute times)
- Community fit (population diversity, brand and image factor, local laws in sync with values)
- Sustainability (carbon footprint, energy costs).
The Decision-Making Process
Ultimately, it comes down to a straightforward question: Does a city tick enough boxes, or at least, more boxes than its alternatives? The method to answering this is equally straightforward. First, an exploration into what the business needs are; second, defining a weighting for each factor; third, assessing and scoring the potential locations for each variable; lastly, selecting the highest scoring location.
The difficulty is accounting for the countless unpredictable variables that are involved in the city’s growth, stability and opportunity costs of not being elsewhere. Upfront costs are expensive and so too are exit costs, making it vital to make the correct decision at the first attempt. When Amazon began searching for a second headquarters in 2017, they reviewed 238 city proposals. It took three months to decide on a 20-city shortlist, and another 10 months to make the final decision. Deciding where to establish is a process of elimination. The number of variables at play has made location decisions data-driven. However, these data have often been qualitative instead of quantitative and are severely lacking.
To address this issue, the New Cities Map (newcitiesmap.com/map) was created by the Charter Cities Institute (CCI). This powerful tool provides quantitative insights into finances, governance, history and city development in 350 new cities (master-planned cities built after 1945) from over 130 countries.
Capitalizing on Smart Cities and Their Sustainability for Growth
Naturally, smart cities become attractive when their core structure and additional perks are geared toward operational efficiency and future-proofing. However, additional thought should be given as to how a smart city’s assets can be leveraged as a growth accelerator. Having access to improved digital infrastructure, smart mobility and an innovative ecosystem only makes sense if it is used in daily operations. Businesses needn’t be set up in a smart city if all the benefits are not going to be capitalized on.
With the growing severity of climate change, corporate sustainable responsibility has become a core focus in many multinationals’ long-term vision. Failure to “go green” can risk losing conscious customers or facing administrative barriers down the line. Smart cities focusing on sustainability have been successful in acquiring such conglomerates. Masdar City in the United Arab Emirates has free zone benefits specifically tailored to sustainable projects and companies. Furthermore, Catalyst is an in-house startup accelerator focused on sustainability and clean technology which invests in relevant projects inside the city. The plan proved effective as Siemens and Honeywell opted to establish sites there. Saint-Gobain, based in 75 countries, decided in 2017 that Masdar City was to be their first location in the Middle East for an energy-efficient “Multi-Comfort House.”
The New Cities Map created by the Charter Cities Institute provides quantitative insights into finances, governance, history and city development in 350 master-planned cities from more than 130 countries.
New Clark City is a 9,450-hectare (23,350-acre) development project in the Philippines. It is the country’s first smart and green metropolis with 60% of the developable area being preserved for eco-tourism ventures. Were a disaster to happen in Manila, the nation’s capital, the country would be crippled as all its government agencies operate there. As such, a new National Government Administrative Center is being built in the city with extreme disaster-resilient measures against earthquakes, typhoons, flooding and tsunamis.
Smooth Operators
How can a city’s regulatory approach incentivize multinationals to set up there?
“Multinationals, definitionally, have a high degree of choice when selecting locations for investment,” explains Jeffrey Mason, research manager at the Charter Cities Institute. “A city must offer some advantage that makes it more attractive than competitors. One area in which cities can compete for investment that does not require substantial physical investment like infrastructure is the regulatory environment. Easy business setup, regulatory compliance, interfacing with government, dispute resolution and paying taxes can make an investment destination particularly attractive, even if alternatives could potentially offer slightly lower costs or slightly better infrastructure. A city where interactions between the investor and the government are quick, painless and low-cost will be very attractive to a wide variety of domestic and international investors.”
Could the New Cities Map help corporate location decision-makers to find cities to establish new facilities?
“Many new cities are built specifically to support investment in new facilities, with better infrastructure connectivity, and often lower land prices/rents, than already built-up areas,” says Mason. “To that end, the map includes filters to show the city’s proximity to airports, seaports and capital cities. The governance data included in the New Cities Map provide prospective investors with information on which policies and regulatory issues the city does or does not have its own authority over, as well as the existence of a special economic zone within the city, all of which can be useful in assessing the fit of the city for the prospective investor from a regulatory standpoint.”
A Collaborative Approach
Just as corporate location decision-makers are tasked with finding the right city for their needs, smart cities also need to work on attracting the right type of businesses for their own success. A “one city fits all” approach will lead to failure. Tailored tenant attraction needs to be thoroughly conducted in the planning phase.
Two cities that have performed this very well are DLF Cyber City in Gurugram, India, and Konza Technopolis in Kenya. Their visions were clear, simple, and effective. They targeted large multinational technology companies seeking to enter countries experiencing rapid technological and economic growth, effectively positioning themselves as ICT powerhouses in their respective regions.
Cyber City houses over 20 Fortune 500 companies including Google, Oracle, IBM, Facebook, Mercer, KPMG and Microsoft. When the Konza Technopolis city project with its favorable ICT regulatory benefits was announced, international firms immediately lined up to express their interest.
The activities of tenant attraction and location decision-making are heavily interlinked. Smart cities should actively target and tailor their tenant attraction strategies by making data open and accessible to the key people making location decisions for corporate multinationals. Cities opting for a collaborative approach are paving the way for success.
Adrianople Group (www.adrianoplegroup.com) is a business intelligence firm that works closely with Special Economic Zones and master-planned cities, including new city and economic zone projects in Latin America, the Caribbean, East Africa, West Africa and Southeast Asia. The Charter Cities Institute (CCI at www.chartercitiesinstitute.org) is a non-profit organization dedicated to empowering new cities with better governance to lift tens of millions of people out of poverty.